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Caution in California: Cannot Use Choice of Law Provision to Circumvent Right to Jury Trial

March 22, 2017

Two typical “boilerplate” provisions in contracts are a “choice of law” provision, which specifies which state’s law should be applied in interpreting the contract, and a “jury waiver” provision, under which the parties agree to waive their rights to a jury trial in the event a dispute relating to the terms of the contract arises. We want to alert you to a recently published decision in California which highlights the importance of not simply relying on “boilerplate” language when entering into contracts.

On January 31, 2017, California’s First District Court of Appeal decided Rincon EV Realty LLC v. CP III Rincon Towers, Inc. (2017) 8 Cal. App 5th 1.The Rincon case was a transactional dispute relating to real property in San Francisco and litigated in California. The underlying transactional documents contained a choice of law provision whereby the parties agreed to apply the law of New York. The documents also contained an express waiver of the right to a jury trial. These types of contractual jury trial waivers are generally enforceable under New York law. In California, however, parties generally cannot waive a jury trial before the commencement of a lawsuit unless they use one of two methods approved by the legislature: arbitration or judicial reference. Cal. Code Civ. Proc. § 631(d).

The California Court of Appeal concluded that, even though the parties agreed to the application of New York law to any disputes regarding the property and the transactional documents contained an express waiver of jury trial, which New York law does allow, the jury waiver was unenforceable because the property in dispute and the forum were in California—giving California a greater interest in the matter. The Court reasoned this decision by citing to Grafton Partners v. Superior Court (2005) 36 Cal. 4th 944, which held that pre-dispute waivers of the right to a jury trial by parties who submit their dispute to a California forum are generally unenforceable as a matter of public policy and that the only methods the legislature has expressly authorized are arbitration or judicial reference.

The California courts have spoken; aside from the legislative approved procedures to submit to arbitration or to a judicial referee, any other pre-dispute attempts to waive a jury trial are unenforceable in California, and, therefore, parties to transactions in California which may be litigated in California should be cautioned not to rely on a choice of law provision for another state in which such waivers are allowed.

Per Rincon and Grafton, under California law, the only way parties may waive the right to a jury trial in the transactional documents are through arbitration or judicial reference, despite a choice of law provision that would say otherwise. We urge parties doing deals in California to review carefully the jury waiver and choice of law provisions in light of the recent decision.